TY - JOUR
T1 - Which Component of Treasury Yields Belongs in Equity Valuation Models? <em>An Application to the S&P 500</em>
JF - The Journal of Portfolio Management
SP - 80
LP - 90
DO - 10.3905/jpm.2013.39.4.080
VL - 39
IS - 4
AU - Durham, J. Benson
Y1 - 2013/07/31
UR - https://pm-research.com/content/39/4/80.abstract
N2 - Given a relaxation of the expectations hypothesis of interest rates and an estimate of the term premium, the remaining assumption that anticipated distant-horizon nominal expected short rates and projected earnings growth are equivalent implies novel cash-flow-based valuation models for shares. For example, an application of a simple dividend-discount framework to the S&P 500, under 600 alternative specifications (to avoid data mining), using a sample from January 1987 through January 2012, fits the data well. It suggests that the model errors correct; it also suggests the argument that estimated forward Treasury term premiums, not yields, belong in the discount factor.TOPICS: Factor-based models, statistical methods, fundamental equity analysis
ER -